Innovation, in brevity, happens at the fringes. It happens furthest away from centralized activity and closest to the touchpoint with the real-life customer. It happens when the tried and true of a company's practice hits new feedback and expectations, and a company's old muscle fiber is tested and torn.
How that company muscle fiber recovers and is changed, with scar tissue generated from that touchpoint interaction, is how innovation changes a company. A company can either recognize the pain that it went through and try to learn from it, or ignore the pain and truck on as it once did.
So essentially there are two paths of innovation: the first part is to place oneself at the touchpoint and greatest probability of difference between a company's old practice and new practice, and the second part is to process that learning and institutionalize it into a company's future practices.